The EU has placed GIs at the center of its quality policy for food and agriculture products. Through the GI system, the EU intends to provide a tool to support the quality and tradition of registered products and to assure consumers that the products of genuine rather than imitation products seeking to benefit from the reputations of the originals. GIs represent a tool to resolve the symmetric information problems surrounding quality that we discuss in module 4. Here are some important facts about GIs in the EU. Over time many products from different EU and non – EU countries have registered in the EU system as having GIs, including about 900 agricultural products and foodstuffs and almost 2000 wines and spirits. According to the latest EU-wide study on GIs, the sale of GIs represents about 5.7 % of the total EU sales of food and drinks. Nevertheless, the relative importance of GI sale values, both in relative and absolute terms, varies significantly among Member States. According to the same source, in France GIs represent about 14 % of the sales of food and drinks. In Germany they represent about 4 %. In absolute terms France, Italy and the UK have the largest sales values. The (national) domestic market is typically the largest market for GIs. Overall, domestic sales represent roughly 60 %, intra-EU sales represent another 20 %, and the remaining 20 % is represented by extra-EU sales. The US comprises the main export market. Other relevant export markets are Canada and Switzerland. A final striking feature of GIs is the large heterogeneity in terms of size and sale values. As you can see in the picture, next to many small-scale GIs, there exist also very large GIs with sale values in the billions of Euros. In spite of this heterogeneity, GIs share something very important: their economic function as tools to prevent market failures. In the last part of this lesson, I will explain some key facts regarding the EU system of protection for GIs and their economic implications. This system requires that a group of producers or a producer organization applies for registration of a GI. Individual producers are not allowed to apply. In the application, producers must explain the geography-quality link, define the area of production and the so-called product specifications, that is producers need to draw up the description or the features of the product and, when relevant for the quality of the product, a description of the production method. Application are screened for an approved based on the existence of a quality-geography link and the quality features described in the product specifications. This screening is meant to guarantee that only products of high quality are protected as GIs. In addition to an ex ante screening of applications, GI certified product are subject to inspection by an independent inspection body that checks for compliance of the GI certified product with the product specifications. These ex post inspections are meant to ensure the products labeled as GIs that reach the market indeed possess the characteristics stated in the specifications. Inspections reduce incentives for producers to exert opportunistic behavior. For example, once a GI is approved, a producer might have the incentive to reduce the quality of its products to save money. This moral hazard behaviour is reduced or prevented when producers are subject to regular controls by an independent agency. The following two facts have implications for the competitiveness of the market. Geographical restrictions to the GI area and the area for the sourcing of raw materials are determined based on the quality-geography link. In addition, all producers within the GI area who comply with the product specifications are entitled to use the GI name to label their products. Both these conditions are meant to avoid obstacles to the functioning of the single market and the creation of monopolistic power from the side of the GI producers. Such obstacles would limit market efficiency and welfare. The next important fact concerns the role of producer groups. The most recent revision of the GI system made the role of producer groups clearer. As already mentioned, producer groups play a key role in the GI application phase. Additionally, they are in charge of promotion activities. They are also responsible for monitoring the use of the GI name and can take actions to ensure legal protection. Nevertheless, the GI regulation does not give producer organizations any power to control the supply of the GI product nor the ability to exclude any producers from GI certifying their product. The role assigned by the regulation to producer groups is important for several reasons. It provides an institutional framework for joint actions favoring economies of scale and scope and facilitating the entry of small farmers into the GI market while at the same time preventing producer associations from gaining market power by controlling the supply of GIs. Finally, GI regulation calls for the ex officio legal protection of GIs. This means that Member State must be proactive in protecting of GIs and must initiate investigation in cases of presumed infringement and misuse. This feature is meant to make legal protection affordable for small firms, favoring the participation of small farmers or firms in GI markets. With this slide, I conclude the lesson of module 8 on Geographical Indications. Thanks for being with me in this lesson. I will see you in Lesson 2 of Model 8 in which I will present a model illustrating the market efficiency implications of GIs.
